Stock Analysis & Ideas

Oracle Stock: A Tech-Slump Winner After Big-Time Purchase

Story Highlights

The sentiment surrounding software stocks like Oracle hasn’t been sunny lately – no doubt about that. Nonetheless, a recently finalized acquisition and an across-the-board earnings victory should help Oracle stockholders survive the tech crunch.

Austin-based Oracle (ORCL) provides software with a primary focus on the cloud. I am bullish on the stock.

Worries about persistently high inflation, a hawkish Federal Reserve, and supply-chain issues have made it difficult to hold technology stocks in 2022. When the prevailing sentiment is overwhelmingly negative, it’s awfully hard to stay positive.

However, something positive was definitely happening as Oracle stock jumped 8% in after-hours trading on June 13. This occurred after a particularly rough day for technology stocks, as the Nasdaq slid 4.68% to land at 10,809.23. Oracle stock shed 4.72% that day, before leaping a few minutes after the closing bell rang on Wall Street.

Clearly, there’s something happening that Oracle stock traders are excited about, and which prospective investors need to know about. Moreover, this development comes hot on the heels of an acquisition that’s bound to change digitized medical care delivery in the 2020s.

A Transformative Effect

After topping out at $106.34 in December of 2021, Oracle stock became part of the collateral damage as tech stocks fell out of favor. There really wasn’t any terrible company-specific news, yet the sellers still managed to push Oracle stock down to $64.

As a result, Oracle’s trailing 12-month P/E ratio declined to a very reasonable 24.01. Furthermore, Oracle pays a forward annual dividend yield 1.91%, so there’s something here for value seekers as well as income-focused investors. Still, prospective investors will surely want to know if there are any catalysts that could help push the Oracle stock price higher even while technology stocks languish.

Indeed, there is an event happening that should have a profound impact not only on Oracle, but also on modern healthcare generally. Specifically, on June 8, Oracle completed its acquisition of Cerner. Hence, if you look for CERN stock now, you won’t find it as Cerner is now part of Oracle.

Cerner describes itself as a “leading provider of digital information systems used within hospitals and health systems to enable medical professionals to deliver better healthcare to individual patients and communities.” The company has, for years, been a leader in healthcare data analytics as well as population health management – which, by the way, is increasingly located in the cloud nowadays.

Oracle is a cloud-market powerhouse, so Cerner is a great fit for Oracle’s business. Amazingly, Cerner has over 26,000 associates, has been granted more than 600 patents worldwide, and invested approximately $800 million in research and development annually.

When the Cerner buyout’s approval was disclosed on June 1, Oracle Chairman and Chief Technology Officer Larry Ellison – a tech celebrity in his own right – proudly touted the broader implications of this transaction. “Working together, Cerner and Oracle have the capability to transform healthcare delivery by providing medical professionals with a new generation of healthcare information systems,” Ellison declared.

A Hyper-Growth Phase

On the financial side, the Cerner buyout should yield tremendous value for the company and its stakeholders over time. As Oracle CEO Safra Catz concisely put it, “We expect this acquisition to be substantially accretive to Oracle’s earnings on a non-GAAP basis in fiscal year 2023.”

Speaking of earnings, let’s not forget about that 8% after-hours pop in Oracle stock. In case you haven’t guessed it by now, this was due to a positive response to Oracle’s fiscal 2022 fourth-quarter results.

Catz didn’t hesitate to brag about Oracle’s quarterly results, but that bragging was well-deserved. “We continued to improve our top line results again this quarter with total revenue growing 10% in constant currency,” the CEO observed.

In dollar terms, the company’s Q4 FY2022 revenue amounted to roughly $11.8 billion. The real star of the show, though, was Oracle’s infrastructure cloud business, which grew 39% year-over-year in constant currency. This revenue growth “spike,” according to Catz, indicates that Oracle’s “infrastructure business has now entered a hyper-growth phase.”

You can decide for yourself whether 39% growth counts as “hyper-growth,” but it’s pretty impressive no matter how you slice it. Turning to the bottom-line results, Oracle reported $1.54 in diluted/adjusted non-GAAP earnings per share, surpassing the company’s target range of $1.40 to $1.44 per share. Thus, it’s not difficult to understand why investors were ecstatically bidding up the Oracle share price in post-market-hours trading.

Circling back to the Cerner acquisition, the earnings press release included a statement of optimism from Oracle’s famous chairman. “Better information will lead to better patient outcomes, better public health policy, lower overall healthcare costs, and a better quality of life,” Ellison predicted in regard to the Oracle-Cerner cooperation.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, ORCL is a Moderate Buy, based on four Buy and eight Hold ratings. The average Oracle price target is $89.80, implying 40.2% upside potential.

The Takeaway

When there’s a horrendous tech crush in progress, investors should pick and choose technology stocks carefully. Only invest in the cream of the crop – the businesses that will transform markets and provide outstanding value to the shareholders.

As the recent data shows, Oracle falls squarely into this category of top-tier tech businesses. Besides, having Cerner in its corner will enhance Oracle’s value even further, demonstrating that the best technology-enhanced companies can revolutionize entire markets even when some traders are avoiding Wall Street altogether.

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